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Facts and fictions of small-cap-value returns Part 1

September 25, 2019

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Some controversy and concern seems to have risen about small-cap-value returns. While on vacation in Europe recently, I used the early morning hours to complete a study examining the history of returns for many of the popular asset classes: S&P 500, Total Market Index, Large Cap Value, Small Cap Blend, Small Cap Value, U.S. Long Term Bonds, U.S. Treasury Bills and Inflation. My goal was to see what we might learn from the past performance of these asset classes.  What can we learn from history about predicting future returns? Should we expect the Total Market Index to give us access to the premium returns of small-cap and value?  Should we expect bonds to give an excess return over taxes and inflation? In this podcast, I am happy to share what I learned and deduced.

As always, I invite you to freely share my podcasts and visit our website for much more information on small-cap-value and many other investor topics.

by Paul Merriman

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Financial Independence Retire Early (Part 2)

September 18, 2019

In this sequel to Part 1, Paul and Ed Fulbright of Fulbright & Fulbright, CPA, PA, continue their conversation about the growing interest in the Financial Independence Retire Early (FIRE) Movement on Ed’s weekly educational radio program, Mastering Your Money. Paul talks about his experience with FIRE, including the recent movie, “Playing With Fire”, his (first) retirement at 40 with the desire to help others, through financial education, and how the Two Funds for Life strategy can be used by those following FIRE principles to enhance their financial planning. Even for those who don’t plan on “retiring early,” Paul sees many benefits to the philosophy of this movement. Join them for this lively discussion of “Do You Want To Retire Early?” Paul will be addressing the “Choose FI” group in Seattle on Sept. 28 and in Charlotte, NC on Oct. 11. See this link for more details about these presentations.

by Paul Merriman

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Financial Independence Retire Early (Part 1)

September 11, 2019

Financial Independence Retire Early (Part 1)
Paul joins Ed Fulbright of Fulbright & Fulbright, CPA, PA, on his weekly educational radio program, Mastering Your Money, to discuss the FIRE Movement.  F.I.R.E. is an acronym for Financial Independence Retire Early. It’s a growing movement of people who are practicing FIRE principles — high savings rates, frugal living, and low-cost index funds — with the expectation of retiring decades earlier than expected. Paul sees “FI”, Financial Independence, as a long-held desire of most people, while the “RE”, Retire Early part, makes sense in an age where people often work multiple jobs, have multiple careers, and working from home is an increasing option. Join them for this discussion on “Do You Want To Retire Early?”   Paul will be addressing the “Choose FI” group in Seattle on Sept. 28 and in Charlotte, NC on Oct. 12. See this link for more details about these presentations. 

by Paul Merriman

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Target Date Funds: America’s #1 Retirement Investment

September 4, 2019

This podcast is the audio-only version of the video, Target Date Funds: America’s #1 Retirement Investment, in which Paul illuminates why Target Date Funds are America’s best retirement investment, and how to maximize that investment with his 2-Funds-For-Life Strategy. While this strategy is ideal for young and first-time investors, it can be effectively used by investors at any stage who want to both simplify and get the most from their investments.
Since the introduction of the modern mutual fund in 1924, no other investment product has been as important to investors as the target date fund (TDF).  Paul explains how TDFs work, 10 reasons TDFs are likely to make investors more money, 6 reasons many TDFs make investors less than they should and how to select the best-performing TDFs.  For investors willing to add a second fund, to work along side their TDF, Paul shows how to substantially increase the expected lifetime return with a “2 Funds For Life” strategy.
Theoretically, the TDF only requires an investor to make two major investment decisions. Investors in their working and saving years only need select the year they expect to retire, and the TDF takes care of all investment decisions.  The second decision, which likely happens at retirement, is a bit more complex, as the investor needs to decide how to invest during retirement, while providing regular income to meet their cost of living.  Paul discusses four possible investment strategies that can be used by investors through the end of their life.
Created for the Washington State Society of CPAs for continuing education credits, this video is being made widely available for free to other professionals (in the financial and related industries) and to the public at PaulMeriman.com via support of The Merriman Financial Education Foundation.
If you find this video helpful, please subscribe to Paul’s YouTube Channel, give it a thumbs up, and share on social media so your friends may also, in the words of Paul Merriman, “Make more money with less risk and more peace of mind.”

by Paul Merriman

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Are These Two Funds the Only Ones You Need for Life?

August 28, 2019

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In this interview — with Joe Andersen, CFP and “Big Al Clopine, CPA of Pure Financial Advisors, Inc. on their podcast, “Your Money Your Wealth” — Paul makes the case that owning just two funds for life is a “home-run” investing strategy for some investors. Plus, the hosts answer your money questions: how should teachers, and others without Social Security or pension, save for retirement? How do you record flexible spending account contributions on your taxes? How long should you keep your tax records? And some talk about Roth IRAs – specifically, making Roth conversions and back door Roth contributions.

by Paul Merriman

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How to avoid the big mistakes pre-retirees make

August 21, 2019

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How to avoid the big mistakes pre-retirees make

Paul addresses the huge decisions facing investors in the final push to meet their retirement goals, about 10 years before retirement. Cautioning against the tendency to jump from one strategy to another or be swayed by Wall Street, Paul presents 12 points for creating a solid long-term investment strategy before you retire. This evergreen recording is from the 2012 special, “Financial Fitness After 50” produced as a premium package for contributors to their local PBS station.

  1. Have a plan.
  2. Stop listening to the wrong people; start listening to the right ones.
  3. Stop paying unnecessary expenses or looking to beat the market.
  4. Get rid of asset classes with low returns at high risk.
  5. Add asset classes that have long histories of success.
  6. Treat every dollar you have invested as if it’s the most important dollar. Do not play with your portfolio.
  7. Maximize contributions to 401ks and IRAs.
  8. Become super savvy about the amount of fixed income in your portfolio.
  9. Don’t conclude that risk is just about losing principle; protect against inflation.
  10. Know how much you need to retire, driven by distribution plan.
  11. Know what is “enough” and when enough is enough, and when it isn’t.
  12. Get good professional help.

by Paul Merriman

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Talking Real Money

August 14, 2019

Paul joins old friend and Vestory advisor, Tom Cock, on Tom’s Seattle radio show, “Talking Real Money”, which begins with addressing the need for emergency money. In answering call-in questions, they discuss the major decision of when to start taking Social Security, annuities, FIRE (Financial Independence Retire Early), how often to rebalance a Buy-and-Hold portfolio at M1 Finance, possible changes in the taxation of inherited IRAs, and more.
Resources include:

Tap Annuity — https://www.merriman.com/wealth-enhancement/how-the-tap-annuity-works-for-washington-state-employees/

Stan The Annuity Man — https://twitter.com/stanannuityman

American Association of Individual Investors — https://www.aaii.com/

ChooseFI — https://www.choosefi.com/

Paul’s Upcoming Presentations — https://paulmerriman.com/paul-live/

by Paul Merriman

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Understanding the 2 Funds for Life strategy

August 7, 2019

In October 2018, Paul and Chris Pedersen recorded a video that offers a new and significant advantage to standard Target Date Funds. Following the release of the YouTube video, “2 Funds for Life — A simple strategy to maximize your retirement investments,” Paul responded to many questions and decided to use this podcast to expand his answers to several of the most common comments and questions.
Join Paul as he discusses:
•  Why adding a second mutual fund, or ETF, to a basic target date fund will likely result in extra returns
•  How to use 2 Funds for Life in the U.S. government’s Thrift Savings Plan (TSP)
•  How a small difference in returns could have a huge impact in retirement
•  The impact of using mid-cap instead of small-cap value
•  How to use the strategy at Schwab instead of Vanguard
•  How often to rebalance the 2-Fund strategy

by Paul Merriman

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21 things mutual funds won’t tell you

August 6, 2019

Are you aware of the many ways that mutual funds can legally and cleverly mislead investors?  An investor should be able to expect the truth, the whole truth and nothing but the truth but, in reality, mutual funds are marketed putting the best foot forward, like almost every other highly-profitable product. In this podcast, produced for the PBS Special, “Financial Fitness After 50,”  Paul covers 21 ways mutual funds can make their products look better than they are.  Find out how they sugar coat returns, mislead investors with meaningless statistics, conveniently ignore some of the most harmful expenses, and suggest returns they know aren’t likely to produce again.

by Paul Merriman

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Is dollar cost averaging the best approach? And what’s the future of small-cap value index funds?

July 31, 2019

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In a recent article and podcast on diversification, Paul noted that dollar cost averaging can be a form of timing diversification. It ensures that an investor will not put all his/her money in at the top of a market. It also ensures “picking up more shares when prices are lower and fewer shares when prices are higher.” Paul suggested that many “lump sum” investors would enter the market more successfully by dollar cost averaging into it.
Many readers and listeners took issue. They noted that the probabilities of higher returns were greater by putting all of the money to work immediately. Some claimed that his recommendation — to split the investment into a year or two of smaller investments — was going to cost investors a lot of money.
In response, Paul switches sides and makes the case in favor of lump-sum investing over dollar-cost averaging into the market. However, he maintains, there are reasonably high probabilities that some investors could end up with 10 to 20 times more money by using the more conservative dollar-cost averaging approach. Listen and learn why.
In Part II of this podcast, Paul addresses the likelihood that small-cap value index fund returns in the future will be as profitable as they have been in the past.  He explains why he thinks total returns may be lower than the past, but also why the relative returns — compared to the S&P 500 — may continue to be higher than most investors expect.
He also addresses the questions:
Has survivorship bias been taken into consideration in creating the long-term returns of small-cap value?
What does Paul Merriman mean by conservative, moderate and aggressive portfolios?

by Paul Merriman

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7 Q&A’s on Expected Risk and Return in Today’s Market

July 24, 2019

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Paul addresses each of these questions which reflect some aspect of investor’s concerns related to risks and returns.
1.  How can people invest in a system that is destined to collapse under our massive national debt?
2.  What average yearly return do you expect for your different stock/bond Best-In-Class portfolios over the next 5 to 10 years?
3.  What do you expect the worst losses for these portfolios will be?
(For Questions 2 and 3, see Paul’s Fine Tuning Table 50/50 Worldwide)
4.  You have used Drs. Eugene Fama and Kenneth French as the originators of the factor investing movement. Are there other academics who agree or disagree with their research?
5.  Do you think DFA funds will make enough more than Vanguard funds to pay for the DFA advisor?
6.  I have moved to a new school district and they only offer TIAA and AXA fund options for the 403b plan. Which do you prefer?
7.  Your portfolios have aggressive, moderate and conservative headings.  How should an investor choose between the three portfolios?

 

by Paul Merriman

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20 things you should know about diversification

July 17, 2019

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Before discussing diversification, which is always about risk management, Paul Merriman presents the returns of the Best-In Class ETF portfolio  The goal of that portfolio was to recreate the DFA portfolio Paul holds in his own account. For the first half of 2019, the advantage goes to the B-I-C ETFs. Way to go Chris Pedersen!  Regarding diversification, Paul addresses why most experts consider diversification the most important investment topic, and presents 20 ways diversification impacts investors who use the portfolios we recommend  The topics include diversification to manage risk: stock risk, market risk, asset class risk, mutual fund risk, investment advisor risk, portfolio risk, time diversification, tax risk, social responsibility risk, bond risk and the risk of losing trust in your portfolio.

 

by Paul Merriman

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Tax rates, presidents, record economic growth

July 10, 2019

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Paul Merriman answers questions about a wide variety of investor concerns: profitable focus funds, using a pension as a substitute for bonds, moving DFA funds to Vanguard, the impact of higher taxes on the market, performance of major asset classes besides the S&P 500, defensive investment strategies for a bear market, popular sector funds, the impact of saving an extra percentage or more a year, the Ultimate Buy and Hold, and an inter-generational conversation about sound investing:

  1. What do you think of Alger Small Cap Focus?
  2. If I have a pension and lifetime annuities, do I need anymore bonds? 
  3.  I have my IBM 401k in DFA funds…Should I move my DFA funds to Vanguard?
  4. Are we likely to see higher taxes in the future?  If so, what impact should that have on the market?
  5. We know the S&P 500 has done well over the last 10 years but what about the other major asset classes?  
  6.  What about the investment strategies that promised great defense against a bear market?  
  7.  What about the most popular sector funds?
  8. What impact would saving another 1, 2 or 3 percent a year have on one’s financial future?

And he shares a story of a young investor who slowly overcame the hurdles to help his parents make important changes to their retirement portfolios. Many children would love to know how to help their parents — often wed to a stockbroker who has been a lifetime friend — move to Vanguard funds. By the way, everyone in the family, for generations to come, could benefit from his patient work. 

by Paul Merriman

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Making the best of your financial future 

July 3, 2019

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In this lively interview with Ken Roberts, of Ken’s Bulls and Bears, Paul and Ken discuss a range of important investor topics for every stage of life, including Millennials on “FIRE”,  Best-in-Class ETFs, maximizing returns while minimizing risk, and retirement distributions.
  • Comparing the use of fixed and variable distributions in retirement
  • The FIRE movement (Financial Independence, Retire Early)
  • How to get better returns without taking more risk, using the Ultimate Buy and Hold strategy
  • How to use the Best-In-Class ETFs with the Ultimate Buy and Hold strategy
  • 2 Funds for Life
  • The possible long-term disaster if Millennials don’t take the risk of adding equities to their retirement portfolio
  • The benefits and realities of investing in small-cap value funds

We apologize for some audio distortion in this recorded interview and hope you not only gain some value from it, but know we’ll strive to do better! Thank you for your interest and please check out our website for much more info on all these subjects and much more.

by Paul Merriman

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How is the stock market doing? (First half of 2019)

June 26, 2019

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Why is it that what seems like a great year so far would have been fairly normal in past decades? 6:03
Paul discusses why it’s different now.  He also looks at how poorly the experts have misjudged the bond market this year, and answers the following questions from his readers and listeners:
•  Why should I invest in funds with higher expense ratios?  Do you really think they will earn enough to justify the higher expenses?  9:40
•  Where can I find the value funds that make the 12% return you talk about? 18:30
•  Will the market keep going up if the population grows and continues putting money into the market? 23:07
•  Can I create an Ultimate Buy-and-Hold Portfolio with just 4 funds? 31:31
•  Is it true that at market highs it’s better to be a stock picker rather than using index funds? 36:00
•  Are you willing to transcribe your podcasts for those of us who would rather read your comments? 40:22

by Paul Merriman

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Is the value premium dead? And 9 more answers to investors’ questions 

June 19, 2019

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These timely questions were posed by investors following Paul’s recent presentation to the AAII Los Angeles Chapter. The first question is the most often asked over the past year.  See this table to compare the returns of some of the asset classes Paul discusses.
1.  Is the value premium dead? 2:15
2.  Should investors fear a bear market in bonds? 23:30
3.  Is there room for gold in a portfolio?  If so, how much? 25:25
4.  Why don’t you recommend small-cap funds when you are older? 27:55
5.  Should I use your 2 Funds for Life Strategy in my 401k or my IRA, and where should I use your Ultimate Buy-and-Hold Strategy?  23:25
6.  What are “DFA” funds? 35:35
7.  What is the role of digital currencies in a portfolio?  37:35
8.  I have become very “risk intolerant.”  I am 60 and afraid of running out of money.  I am extremely worried about outliving my money.  Plus, I am concerned about the direction of the country.  I feel like the only safe place for my money is under my mattress.  What can you say to calm me down?  39:45
9.  If you receive a pension, should you change your portfolio allocation to be more heavily weighted to stocks? 44:35
10. I only pay .01 and .04 percent in mutual fund expenses.  They are mostly in Total Market Index funds at Fidelity, Vanguard and my employer.  Your approach to diversification increases the cost to about .19%.  I’m wondering whether the extra cost will more than compensate for the extra expenses.  What do you think? 47:10

by Paul Merriman

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Flexible distributions in retirement: The ultimate strategy

June 11, 2019

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Do you want to minimize your risk of running out of money in retirement, while maximizing your distributions? In this podcast, Paul compares the risks and returns of fixed and flexible distribution strategies using the S&P 500.  He discusses why the flexible may be the greatest financial luxury one can have in retirement.
To better understand the comparisons made, see Fixed Distribution Tables 2 and 3 as compared with Flexible Distribution Table 23.
Also, read our latest MarketWatch article on Flexible Distributions!
To listen to Paul’s podcast, “10 Things You Need to Know About Fixed Distributions — Update 2019,” click here.

by Paul Merriman

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Explaining the Ultimate Buy-and-Hold Portfolio

June 5, 2019

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This recent interview with Jonathan and Brad of ChooseFi.com is both an excellent starting point for new investors and a refresher for seasoned investors as Paul discusses how to know who to trust, the role emotions play in making sound decisions and staying the course, the importance of diversification and choosing asset classes, and the pros and cons of active vs. passive management. He also explains stock market history and numbers and what they mean to investors, how to increase your odds of success, and simplifying the Ultimate Buy-and-Hold portfolio, using target date funds, small-cap value and his Two Funds For Fund strategy.
To read insights from this interview from ChooseFI.com, click here.

by Paul Merriman

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10 things you need to know about fixed distributions- 2019 update

May 29, 2019

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For more than 15 years Paul has updated his discussion of fixed and variable distribution strategies. In this podcast he discusses the pros and cons of fixed distributions so investors understand:
  • The importance of the data used to represent returns
  • The huge differences between 3, 4, 5 and 6 percent distributions
  • The importance of inflation
  • Why 3% is the most trustworthy strategy… but be overly conservative
  • How an extra .5 to 1 percent return can translate into millions of extra dollars to you and/or your heirs
  • How 10 years of performance may encourage investors to make the wrong decision
  • How one seemingly harmless decision could lead to going broke
  • How these tables should be used by members of the FIRE (Financial Independence Retire Early) Movement
Listeners should printout or access the Fine Tuning Table for the S&P 500, as well as Tables 1 thought 4 on Fixed Distribution Strategies.
At about 4:25 of the podcast Paul mentions taking a 30% distribution.  What he should have said is a 3% distribution.

by Paul Merriman

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Answers to 12 Questions from AAII investors

May 22, 2019

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Paul addresses questions raised during his recent presentations to more than 200 AAII members in Madison and Milwaukee. Also, he recounts an exciting meeting with 2 young women (ages 13 and 15) and their parents who announced the start of their daughters’ lifetime investment journey modeled after How To Turn $3000 Into $50 Million Dollars. Briefly, Paul mentions his upcoming AAII presentation in Los Angeles on June 15 and The Money Show in Seattle June 15 and 16. Read about both events here.  A list of recommended speakers to catch at The Money Show will be published in his next newsletter May 30. If not subscribed, sign up for the free twice-monthly newsletter at PaulMerriman.com.Here are 12 important questions raised from Paul’s AAII presentations in Wisconsin:

  1. How do you determine the best asset allocation for a new retiree? 7:00
  2. Why don’t you include sector funds in your recommendations? 13:30
  3. Why do you consider index funds more regulated? 16:00
  4. What do you mean by “automatic market timing? 18:00
  5. Why don’t you include international bonds in your portfolios? 22:50
  6. If children aren’t going to listen to parents for investment advice, who are they going to listen to?  26:20
  7. What are the loads and expense rations of using Dimensional Funds (DFA)? 30:55
  8. Can individuals invest in DFA funds without a middleman? 35:30
  9. Why not include growth funds in your recommended portfolio? 38:40
  10. What should I be able to count on for small-cap-value returns? 45:45
  11. Should my 63-year-old husband change his Target Date Fund to your Ultimate Buy and Hold Strategy? 32:50
  12. What is the difference between rebalancing annually and monthly? 56:00

LINKS MENTIONED IN THIS PODCAST
Performance: What Should You Plan On For The Future?
https://paulmerriman.com/performance-what-you-should-plan-on-for-the-future/

Asset Class Comparisons.  https://paulmerriman.com/wp-content/uploads/2018/06/Asset-Class-Comparisons.pdf

by Paul Merriman

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